May an employer enforce both "garden leave" and a restraint of trade?
When a senior employee resigns, companies sometimes choose to place the employee on "garden leave" on full remuneration. Whilst employees generally do not enjoy a right to work (as opposed to the right to be remunerated) employers may include a garden leave clause in an employment contract. This clarifies the employer's right to instruct the employee to stay away from the workplace for a period at full remuneration. Invoking a garden leave clause in an employment contract is a useful tool to impose a period of commercial inactivity prior to termination. It holds a number of advantages: confidential information within the knowledge of the employee may become stale and the employee remains unable to take up employment with a competitor whilst avoiding a challenge to a restraint of trade clause that becomes operative upon termination of employment.
But what happens when a company wants to rely on a garden leave clause prior to termination and also enforce a restraint of trade undertaking after termination? This question surfaced for the first time in South Africa in the recent case of Vodacom v Godfrey Motsa and MTN Group.
The employee commenced employment with Vodacom on 8 January 2007. He later became the head of the Consumer Business Unit, and a director and executive committee member of Vodacom. In December 2015, the employee resigned and told Vodacom that he had received an offer of employment from MTN - a direct competitor.
The employee's contract of employment with Vodacom contained a 6-month notice period as well as a 6-month restraint of trade provision. Amongst others, the contract allowed Vodacom to place the employee on garden leave during his notice period.
One of the questions before the court was whether Vodacom could enforce both the 6-month garden leave and the 6-month restraint of trade provisions, effectively sterilizing the employee in the market for 12 months.
The court looked across the seas for guidance from our cousins in the United Kingdom and New Zealand. In keeping with the international trend, the court held that a garden leave provision should be taken into account by the court when determining the reasonableness of the duration of a restraint of trade.
In other words, when a court is required to assess the reasonableness of a restraint of trade, it must take account of the full period that the employee is out of the market. This is consistent with public policy which disapproves of experienced and competent employees allowing their skills to atrophy during an unreasonably long exclusion from commercial activity.
With this in mind, the court held that the employee had intimate knowledge of Vodacom's short and long term strategic plans, information that would obviously benefit a direct competitor. In this case, the court held that a period of restraint that spans 12 months following the employee’s resignation is reasonable.
Although the court enforced both the garden leave and the restraint of trade in this case, it serves as a warning to companies to ensure that the period of garden leave is taken into account when determining the duration of any post-termination restraint of trade.